Scotland: Smith Commission

Lord Shipley Excerpts

Thursday 27th November 2014 Lords Chamber

[Lord Wallace of Tankerness]

I agree with the noble Lord, Lord Soley, who I know has had a strong interest in these issues and how they affect not only Scotland but other parts of the United Kingdom. I repeat that the Government have made it clear that they will consider proposals for the establishment of a convention. As my noble friend Lord McConnell, who is sitting beside the noble Lord, knows, a convention is not necessarily a quick answer, but nor should it be an excuse for kicking things into the long grass.

[Lord Shipley (LD)]

I ask the Minister a specific question about air passenger duty. I refer to paragraphs 86 and 95 of the Smith commission report. Paragraph 86 gives the Scottish Parliament the power to charge tax on air passengers leaving Scottish airports, or it can decide to abolish it. That is the existing policy under the Scottish Parliament. However, the abolition of APD in Scotland but not in England would give a huge competitive advantage in the cost of air fares to those flying from Scotland compared to those flying from the north of England. I wonder whether, in line with the no-detriment principle in paragraph 95, the Government have any plans, should Scotland abolish APD, to abolish APD across the north of England.

[Lord Wallace of Tankerness]

My noble friend makes an interesting point, which I am sure my colleagues in the Treasury will note. I recall considering APD during the Calman commission. First, there is no guarantee. My noble friend says that the current policy of the Scottish Government is to abolish it or change the rates, but if they reduce one tax, they have to find the money for some of their spending commitments, which are not small, somewhere else. Therefore, I do not think we can necessarily be sure how that power, when devolved, will be used. Many other factors will come into a passenger’s choice of airport other than APD. If one was travelling, let us say, from Hull, I am not sure that one would want to take on the extra journey to go to Edinburgh, bypassing Newcastle, to start a journey. APD is only one part of a passenger’s choice.

Scotland: Devolution

Lord Shipley Excerpts

Wednesday 29th October 2014 Lords Chamber

[Lord Shipley (LD)]

My Lords, as someone who also comes from the north-east of England, I congratulate the noble Lord, Lord Lennie, on his admirable maiden speech.

I am much encouraged by the Government’s achievements in devolving power across the UK since 2010, with the Scotland Act 2012, with the Wales Bill, together with city deals and local growth deals in England, which have enabled local economic areas to lead investment decisions. The referendum result in Scotland is now accelerating that process in England where there is an appetite for greater devolution.

There is, however, a huge difference between Scotland—which already has a parliament and significant devolved powers, and which debated independence for two years—and English regions and subregions, which have no directly elected structures and few devolved powers and have not, with a few honourable exceptions, been thinking much about devolution other than in terms of general ambitions. Defining what is wanted in detail, with clarity about governance and resourcing, place by place, is an essential prerequisite to successful devolution.

There have been a number of think tank reports on devolution within England, together with policy statements by bodies such as the Local Government Association, of which I am a vice-president, Core Cities, the County Councils Network and the London Finance Commission. With the City Growth Commission adding its weight last week and with two further independent commissions reporting over the next three months—the Independent Commission on Economic Growth and the Future of Public Services in Non-metropolitan England and the Independent Commission on Local Government Finance—a detailed set of evidence is being assembled.

Scotland voted no in the knowledge that even a no vote would result in extensive new powers following the vow delivered from Westminster a few days before polling day. Newspapers across the north of England followed up on the day after the Scottish referendum result, asking the Government, “Now what is your vow to the North?”. It is a reasonable question, but it invites the reply “Exactly what powers do you want?”.

Thankfully, ResPublica, with Greater Manchester, has produced for that part of England a route map, Devo Max—Devo Manc. Sensibly, it understands the need for incremental devolution leading within a few years to the full devolution of the £22.5 billion annual public sector spend in that area. This is where we need to be headed for all parts of England willing and able to take on greater responsibilities.

This is because there are two major advantages to the UK in devolution within England. First, it will help to drive growth, as many think tanks have demonstrated, particularly through a better fit in skills investment, which responds more directly to the needs of employers, and in planning for housing and transport. Secondly, it will make public services more efficient because they will be better joined up when run at a local level.

We must combat the silo approach of Whitehall departments and the 50 central institutions which channel public spending into England with more than 1,000 funding lines. I am pleased that my own party resolved at our Glasgow conference that it would introduce a devolution-enabling Bill in the new Parliament to permit devolution on demand to councils or groups of councils.

During the passage of the Scotland Act 2012, the UK Government set out three devolution principles. These were that proposals should have broad cross-party support, should be based on evidence and should not be to the detriment of other parts of the UK. I think those principles should apply to those parts of England now wishing to secure devolved powers from Westminster. There are others.

First, on equalisation of resources, however the detail of devo max for Scotland turns out, it will inevitably and rightly give Scotland much greater responsibility for tax raising. In this situation, even without the Barnett formula, tax raised and public spending would be broadly in balance if Scotland keeps the corporation tax raised there. This is a very important matter, not least because it establishes the principle of geographical ring-fencing within the UK.

Some voices in London, not least some mayoral candidates, are suggesting that what is good for Scotland is good for London. There is an increasing demand for London to keep more of the tax raised in London. This has the potential to become a very dangerous trend for the rest of England and for Wales if it is not handled extremely carefully.

In the case of Greater Manchester, for example, the ResPublica report shows that public spending is £22.5 billion yet tax raised is only £17.7 billion. Devolution of responsibilities to Greater Manchester would make public spending go further and would increase tax revenues by increasing growth. The ambition is to bring tax and spending further into balance, and that is right, but not all places can do this, and we will still need a system of equalisation which protects those areas less able to increase their tax revenues.

Secondly, the UK must remain responsible for UK-wide policies, such as major infrastructure investment, and for the core policies behind public services and welfare provision.

Thirdly, on governance, with devolved powers come extra responsibilities for delivering growth and greater efficiency and for managing investment and risk. Having a governance structure that is fit for purpose and commands public support will be essential. We will have to build on the structures we have, on city regions and, we hope, county regions and combined authorities. As they grow in their responsibilities, such authorities will need a more secure democratic mandate. I think that must mean direct elections using a system of proportional representation.

In conclusion, the next step has to be a constitutional convention to examine powers, responsibilities, capacity building, governance, tax-raising powers and spending powers for devolution within England. I hope that we will do that.

Scotland: Independence

Lord Shipley Excerpts

Tuesday 24th June 2014 Lords Chamber

[Lord Shipley (LD)]

My Lords, I associate myself with the thrust of the contribution of the noble Lord, Lord Haskins. He is right to say that we need to devolve power out of London in an overcentralised England. I want to do that, as he does, as part of a United Kingdom that includes Scotland.

I hope that voters in Scotland will vote no decisively. The United Kingdom is stronger together, to the benefit of Scotland, Wales, Northern Ireland and England, individually and collectively. The process of splitting would be long and hard, and the outcome would be uncertain for everyone. I do not want to see a border created between Scotland and England, but one might prove to be inevitable. Greater devolution following a no vote would be the best outcome, and would lead in turn to faster and deeper devolution in England—a trend that has started but which has some way to go to equal what is happening in Scotland, Wales and Northern Ireland.

I want to concentrate my contribution on the report of the Select Committee on the Constitution and say that overall the report is extremely cogent and persuasive. It confirms that if Scotland becomes independent, it is seceding from the United Kingdom, which will remain the continuator state. The report defines the rules around division of fixed assets appropriately, and concludes correctly that division of non-fixed assets would need to be negotiated. The constitutional implications are clearly set out.

I was a member of the Economic Affairs Committee when it undertook an inquiry into the economic impact on the UK of Scottish independence. It reported last year and during the hearing of evidence I began to doubt the wisdom of holding only one referendum. If the result in September were a no vote, that would be clear and no further referendum would be needed. However, I felt as we listened to the evidence that the complexity of the issues was such that to hold a referendum only on the principle of Scotland becoming independent, as opposed to a referendum on the final agreement, might cause more problems than it solved if the result of the September vote was yes.

I am still of the view that two referendums are needed if the first results in a yes vote. This issue is alluded to in paragraph 67 of the Select Committee on the Constitution’s report. The matter considered in that paragraph was whether Scottish MPs elected to the UK Parliament in 2015 should leave the UK Parliament on independence day, should there be a yes vote in the referendum. I agree with the report’s conclusion that they would have to leave. I do not see how that could be in dispute. This paragraph, however, contains a second issue, which is perhaps too summarily dismissed. It says that,

“the Edinburgh agreement was for a ‘decisive’ referendum whose outcome will be respected on both sides”.

That of course is true, strictly speaking, but it assumes, first, that there will be two sides, not several sides, when it comes to a negotiation; and secondly, that Scottish voters will not want to change their mind.

My question is this: what happens if the vote on 18 September is yes by a very narrow margin of, say, 51:49, but the Scottish Government elected in May 2016 want to reverse the decision to become independent, and secure a mandate at the election to overturn that narrow yes vote in the referendum? The referendum question in September is a simple one about principle. It lacks any detail. It asks:

“Should Scotland be an independent country?”.

There are no timescales. My point is that the negotiations, however long they take—whether they be short or long, and whether there is an independence day before the 2016 elections—are likely to throw up problems that voters may not have considered or not been able to consider, and which may cause them to wish not to proceed. So can they change their minds?

To hope or to expect that a narrow yes vote can be “decisive” when negotiations have not taken place seems to be an assumption too far. I am for speed in the negotiations should there be a yes vote, in order to avoid constitutional limbo. However, I cannot see how a referendum is decisive when it is about principle only and not about the practical consequences. I hope the Minister in his reply may be able to define in what circumstances a yes vote in September could be overturned by the choice of Scottish voters, either by a second referendum, should one be called, or by the result of the 2016 election.

Scotland: Independence Referendum

Lord Shipley Excerpts

Thursday 30th January 2014 Lords Chamber

[Lord Shipley (LD)]

My Lords, like the noble Lords, Lord MacGregor of Pulham Market and Lord Forsyth of Drumlean, I was a member of the Economic Affairs Committee, which reported last year on the economic impact on the UK of Scottish independence. When we debated the report in this House in June, we said that it was important that voters understood the implications of their vote before they cast it. We said that voters should reasonably expect to know whether membership of the EU would be secure, how long the process of applying might take, what the implications for taxation—both personal and corporate—would be, what the implications for public spending might be, which currency would be used, which fiscal policies would be put in place and what regulatory policies might be different in Scotland from the rest of the UK.

Some of these issues, particularly around banking and fiscal union, have been clearly explained this week by the Governor of the Bank of England. However, there are uncertainties around entitlement to Scottish citizenship, as well as other uncertainties around tuition fees and whether they would or would not be free at Scottish universities for students from England, Wales and Northern Ireland.

Another key issue is the Barnett formula because, if Scotland became independent, the extra 15% of public spending per head would cease. Oil revenues might make up the difference, but such oil tax revenues would inevitably be uncertain because they would fluctuate according to the market price. It is true that, on the basis that 90% of oil reserves would be in Scottish waters, the tax gain from that could make up for the loss of the Barnett formula, but it seems very clear that there would not be any more money available overall for public spending if Scotland was independent.

A further key issue is UK debt, which now stands at £1.38 trillion and rising. Scotland would have to take its share of that debt, but it is generally recognised that bond rates would be higher in Scotland after independence than they are now. The UK can borrow at very low rates but Scotland on its own could well have to borrow at two percentage points higher. What would be the impact on Scottish mortgages, bank loans and inflation?

Another key issue is the nature and benefits of our integrated domestic market. Dividing it into two separate fiscal, regulatory and consumer protection regimes could create serious difficulties for the private sector and increased costs for households and businesses in areas such as pensions and insurance.

I have been, and remain, a firm advocate of increased devolution in the UK, but I also believe that the full independence of any part of it would dislocate the whole of the UK, making it much more unbalanced. It would reduce our international influence, endanger a single labour market and put into doubt the existence of UK-wide communications systems. It would also prevent our sharing of investment and risk across the United Kingdom.

Living in the north-east of England, I strongly support closer working between Scotland and north-east institutions—something that I am very keen to see enhanced, whatever the outcome of the referendum. I was particularly pleased to see the work on the border lands produced by four authors from Northumbria University, Durham University and IPPR North, which examines possible scenarios for the north-east of England and Cumbria if Scotland becomes independent or has maximum devolution within a UK framework. I welcome initiatives such as this because we need a debate in England and the rest of the UK rather than only in Scotland.

I want the United Kingdom to remain united but, equally, I hope for greater devolution to the UK’s constituent parts. I think Scotland will find greater flexibility inside the UK than it would outside because of the constraints that would be imposed on an independent Scotland in areas such as higher borrowing costs. However, I acknowledge that this is a decision for the people of Scotland to take. However, I make a plea to the media based in England. England needs to understand better what Scotland is thinking, on both sides of the independence debate. Too often what I read and hear in English newspapers is an English commentary by an English commentator. UK newspapers, for example, may have Scottish editions with specific pages on Scottish news, but those newspapers do not get sold in England. Over the next few months it would be helpful if newspapers printed in England carried much more Scottish news and articles on the independence debate so that we develop a better understanding of what people are thinking. I should acknowledge at this point that the BBC has started to do this and I welcome that.

A historic opportunity is on the horizon for the United Kingdom. If Scotland votes yes, the consequence would be a new constitutional settlement with the rest of the UK. If Scotland votes no, there will be a debate on devo-max and what further powers could be devolved; I anticipate that. Either way, we shall have the opportunity to undertake a new constitutional settlement across the UK, spear-headed by the debate and the vote in Scotland.

We should start here at Westminster, with English issues being reserved matters for English MPs only. I am not a supporter of a separate English parliament, because it would cover too big and diverse an area and too big a population. Rather, I favour gradual devolution of greater powers to combinations of local authorities with coterminous boundaries with local enterprise partnerships, thus encouraging and securing joint working between the two. There is rising demand across England now for devolved powers from Whitehall, for a place-based system of finance through a single pot covering all relevant Whitehall departments. The recent London Finance Commission report Raising the Capital looked closely at this, but cities across England are now calling for a suite of fiscal reforms including devolution of property tax revenue streams—council tax, stamp duty, land tax and business rates—with the ability to reform those taxes while retaining prudential rules for borrowing.

The debate in Scotland will provoke a great opportunity. I welcome that, but I welcome too one potential consequence: that we will actually have a debate in the rest of the UK on what a new constitutional settlement across the UK might look like.

The Economic Implications for the United Kingdom of Scottish Independence

Lord Shipley Excerpts

Wednesday 26th June 2013 Lords Chamber

[Lord Shipley]

My Lords, I have spent much of my life as a firm advocate of increased devolution in the United Kingdom. I would have voted for a Scottish Parliament had I lived north of the border. I have watched with enthusiasm the devolutionary trend in Wales, Northern Ireland, Scotland and London, and now increasingly in England, through local enterprise partnerships and the single local growth fund announced today. This will require local authorities to work more closely together in much more strategic ways.

The debate today is about the extent of devolution and what responsibilities should follow from it. In recent years, the Calman report has made a number of important observations and recommendations about Scotland. In the north-east of England we had a referendum on whether to have a regional assembly, which would have introduced an elected regional dimension of a kind similar to Wales. As we know, in that referendum an assembly was rejected, but other solutions for joint working have had to be found. Coming from the north-east of England, I feel a very close association with Scotland. There is a lot of close working between Scottish and north-east institutions, which I want to see enhanced rather than being made more difficult.

The report of the Economic Affairs Committee on the economic implications for the UK of Scottish independence is therefore timely and important. As we have heard, it is the outcome of a lot of work. I, too, pay tribute to our chair, the noble Lord, Lord MacGregor of Pulham Market, for his leadership of our committee over many months. We concluded that the implications of Scottish independence are too important to be left unexplained, either for those in Scotland with a vote in the referendum, or those elsewhere in the UK with an interest in the outcome of that vote.

The title of our report is important. It addresses the economic implications because this can never be just a political debate, which takes me to the referendum. Like others, I have not understood why the referendum due next year will be a vote in principle. In the case of a yes vote, negotiation after that decision in principle will be undertaken in a very limited period of time, which is clearly too short. This does not seem to me to be the right way to run a referendum. As our report states:

“Voters in Scotland deserve the best evidence-based assessment of the likely economic consequences of independence”.

Because independence would have consequences for the whole of the UK, everyone living in the UK needs to understand what the economic consequences may be for them. It follows that voters who will make the decision in Scotland should not be expected to do so without a full explanation of the matters they should consider before casting their vote. For example, Scotland and the rest of the United Kingdom have benefitted from a single market which enables free trade and investment. Differences in currency, regulation and levels of taxation could all have a significant impact on both the United Kingdom and Scotland. Voters need clear information.

Paragraph 20 of our report makes the point that:

“The United Kingdom single market has helped the Scottish financial services sector to grow”.

However, as we point out, on its own the Scottish economy is dwarfed by the balance sheets of Scottish banks, with the total assets of RBS and HBOS being over 15 times Scottish GDP. The Chief Secretary to the Treasury and the right honourable Alistair Darling were correct to remind us that UK government support for RBS amounted to more than 200% of Scotland’s GDP. As the Chief Secretary to the Treasury said in his reply to the Committee's report, if Scotland were to separate from the UK, this integrated domestic market would split into two separate markets, subject to separate legal and regulatory regimes. This could create additional difficulties for financial services firms and increase costs for households and businesses in areas such as pensions, ISAs and insurance. It could also mean that consumers living in different parts of the UK were offered different standards of protection when purchasing financial services. I am not sure that all these matters have been fully understood by consumers both sides of the border and they need to be so.

I shall not say much about defence or currency—the issues have been well explained in our report. However, on defence, I was interested in the report of the Scotland Institute, published on Monday this week, which said that independence would result in a “wholesale dismantling” of Scotland’s defence industry and that the process of separation from the UK would be “a monumental task”, with the consequences “deleterious” in which Scotland would have a defence force which,

“hardly constitutes an armed force in any meaningful sense”.

That report should be taken note of.

Public spending per head in Scotland is higher than in the UK overall. It is not clear why it should be, although one understandable factor is geographical size—and then, of course, there is the Barnett formula. In 2011-12, spending in Scotland was 11% higher than in the UK overall. If Scotland became independent, that level of public spending as a share of the UK’s budget would not continue. As we have heard, oil revenues might make up the difference, but they could be uncertain and would fluctuate. The best estimates are that the Scottish sector would receive net tax revenues from oil production of between £5 billion and £10 billion a year. The difference in revenue between years could of course be substantial. If the division of the physical assets was on a geographical basis, 90% of oil reserves would be in Scotland and, broadly speaking, the tax gain would make up the loss of the Barnett formula, although people would need to be clear—again, as we have heard—about the consequences of decommissioning costs. Overall, it would seem that in the past five years the average annual tax revenue from oil and gas has been just over £9 billion, but that is one-fifth of onshore tax revenues for Scotland but less than 2% of the UK’s onshore tax revenues overall. I think that there would be a serious overdependency on oil if Scotland became independent.

The committee concluded that that a division of financial assets and liabilities should be on a population basis, but that the process would be complicated. We emphasise in paragraph 91 that the Scottish Government should explain to voters before the referendum exactly how they would plan to take over their share of public sector debt and liabilities.

Then there is Scotland’s credit rating. It will almost certainly have to pay a premium on its debt because of its small size. It is important that the Scottish Government should be clear to voters what level of debt Scotland will carry and how that debt will be serviced.

On tax revenues, the Institute of Chartered Accountants of Scotland reminded us that there are no official statistics for tax raised in Scotland; in other words, we do not know what the gap is between tax revenue raised and the spending of block grant. It seems pretty fundamental to the referendum that people should understand the current tax yield for Scotland. I understand that Oxford Economics has done an exercise which has shown that there could be a fiscal deficit even if we counted all oil and gas as Scottish, which is unlikely to be the case. Official statistics are needed nevertheless, otherwise how do Scottish voters make an informed decision? We should note that the Institute of Chartered Accountants of Scotland also said that to design a new tax system for Scotland could take a decade.

There is a whole set of assumptions about how independence would be progressed in the event of a yes vote, but the issues are not as straightforward as some would wish them to be: on currency, on credit rating, on tax, on assets and liabilities, on loss of the Barnett formula, on oil and gas reserves, on EU membership, on pensions, on regulation and on defence. All need to be clearer before people are asked to make an irrevocable decision. The Chief Secretary to the Treasury, in his reply to the report, agreed that:

“It is crucial that the referendum debate is properly informed”.

As we have heard, papers are now being published and we should welcome that.

However, we also need to identify the cost of independence—of the process and the need to create a separate system of government. The issue cannot simply be: “Should Scotland be independent?”. Rather, it is whether Scotland—or any other part of the United Kingdom for that matter—can be independent in economic as well as political terms. Our report shows that Scotland would face similar constraints to now should it become independent. Indeed, it shows that those constraints may well prove to be even greater than they are now.